THE ECONOMIC HIT of the housing downturn that struck property owners during the past two years is now whacking local governments with a vengeance, forcing cuts in everything from police and grounds maintenance to firefighting and library services.

For years, local officials had figured that the state’s unusual property tax assessment formulas, which protect property owners from volatile tax increases when the housing market surges, would also insulate local cities, counties and special districts from tax revenue declines if housing prices fell.

City managers and county administrators had assumed that, in a worst-case scenario, assessments, and the corresponding tax revenues, would only flatten. Last year, they saw signs that they were wrong. This year, reality is hitting them in the face.

For the first time since the 1978 passage of Proposition 13, the landmark property tax-cutting initiative, the assessed value of the state’s residential and commercial property is expected to decline.

In the spring, the state Legislative Analyst’s Office internally forecast a 3.5 percent drop for the 2009-10 fiscal year. Now assessors across the state are starting to report their numbers and, indeed, the trend is unmistakable: Values are dropping.

Contra Costa and Alameda counties this month reported their first declines since Prop. 13 passed. Contra Costa was off an average 7 percent and Alameda County about 3 percent. In the Central Valley, San Joaquin County, which last year experienced its first decline, 1 percent, saw the numbers plummet nearly another 11 percent this year.

Dan Goodwin, president of the California Assessors Association, told Bond Buyer newspaper this month that the valuation in the state’s 12 largest counties was down almost 2 percent. Those counties represent more than three-quarters of the state’s total tax roll.

In select Contra Costa communities, the numbers are devastating. Antioch, San Pablo and Oakley are each down more than 20 percent. In Hercules, Pittsburg, Richmond and Brentwood, the declines range from 14 percent to 18 percent. Alameda County was led by Hayward’s 8 percent drop, followed by Livermore, which was off 6 percent from the previous year.

The devastating property tax numbers from county assessors are a key part of the compounding bad news hitting local government officials as they struggle to make ends meet.

To make matters worse, the Legislature and Gov. Arnold Schwarzenegger agreed last week to dip into local governments’ pockets to help temporarily balance the state budget.

It’s important to keep in mind that assessed values used to calculate property taxes are often very different from the actual market values of properties. So even cities like Piedmont, Orinda, Berkeley and Lafayette that showed overall increases in assessed value probably experienced declines in overall market prices, according to assessors in Contra Costa and Alameda counties.

Here’s how the system works: Under Proposition 13, when a property is sold, the house is assessed at the sale price and property taxes are set at 1 percent of that assessed value. In subsequent years, that assessed value can only increase at a rate of no more than 2 percent annually, even if market value is rising much faster.

Because of the historically quick run-up in California real estate prices, the market value is often much more than the assessed value. So, even when prices start to decline, the assessed values on houses can continue to rise by 2 percent annually until they catch up with market value.

The exceptions are recently purchased homes that have lost market value since their last sale. In those cases, the assessed value drops with decline in market value. But, for three decades, increases in the value of the underassessed properties outweighed any decreases. That’s the scenario public officials had come to expect.

That all started to change last year as the collapse in market prices took hold, dragging down assessment averages for entire communities. The effect was magnified this year, especially in cities with lots of new homes that were purchased just before the downturn.

In the East Bay, Antioch has been among the hardest hit, losing more than $2 billion of assessed value. It’s a classic example of the building-boom-to-bust scenario. It was a little more than a year ago that Antioch City Manager Jim Jakel forecast fiscal year 2009-10 property tax revenues would be about $21 million for his East Contra Costa community. Instead new numbers show the city will receive less than $14 million.

The difference is huge. It’s the leading reason that the city budget, which was $47 million three years ago, is now down to $36 million and shrinking. It’s the reason 20 percent of city jobs have been eliminated in just the past year.

“We just are not going to be able to do the maintenance we were able to do before,” says Assistant City Manager Arlene Mornick. “People are going to start seeing it. It’s going to be very visible.”

Violent police encounters in California last year led to the deaths of 157 people and six officers, the state attorney general’s office said Thursday in a report that provides the first statewide tally on police use-of-force incidents.

At 6:03 p.m. Wednesday, police responded to reports of the robbery at the facility, 2301 Bancroft way, and learned that a man who snuck into the facility and began prowling through the building, taking cell phones and wallets from victims.

Investigators’ efforts to solve the case led to the arrests of Pablo Mendoza, 25, of Hayward, Brandon Follings, 26, of Oakland and Valeria Boden, 26, of Alameda, the Alameda County Sheriff’s Office said Thursday.